Jerome Powell's address today has been seen by many as being market-neutral, with some commentators even calling it slightly dovish, given the absence of a clear commitment to future rate hikes. However, I interpret a potential market risk in Powell's consistent aim to maintain elevated borrowing costs until inflation returns to the Fed's 2% benchmark.
My concern is that the economy, along with the markets, might not endure these high interest rates for long enough to see inflation settle at 2%—at least not without experiencing a serious downturn. I'm worried that history will repeat itself, with Fed officials once again ruminating over inflation and its risks until the markets falter. Subsequently, they'll shift gears, pushing inflation concerns aside and making hasty rate cuts.
For TMF, this trajectory could actually prove beneficial.
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